AIBU to wonder why banks offer loans to people with savings?

[PrettyLittleRose]

I know a few people who have come into some money in the last two or three years, via cashing in several small pensions and also via small inheritances, (so they have about £40,000 to £55,000.) When they were on the bones of their arse, and didn't even have a couple of grand towards a new car, the bank shut the door in their face, forcing them to have to buy a car on the credit card. (Not multiple 1000s, just like 2 to 2.5 thousand.) and then they paid it off at one to two hundred a month. Depending on what they could afford. They only asked for loans of about 2 to 3 grand!

Now they have a mid 5 figure sum in the bank, they're being bombarded with offers for loans. BIG ones. Weekly messages saying 'you have been pre-approved for a £25,000 loan!' Several people I know are getting offers weekly, and have been getting them all year!

Why on earth do they offer people loans when they've already got loads of money in the bank?! I googled this, and all I got is 'their algorithms flag you up as a good risk. You have the money to pay back the loan if you take one out!'

But it makes no sense WHY they offer people money (well, offer to lend it to them!) when they have it already in their bank. What is the point? It's like refusing to let someone use your umbrella when it's raining, and then letting them have it when it's sunny!

It just really annoys me LOL!

Banks want to know they will get their money back and they will get it with interest.
People will keep money in the bank for unexpected expenditure and borrow for planned expenses with a plan on how to pay it back.

Like you said, they know they have the money to pay it back.

Would you lend money to someone if you didn't know how they were going to pay it back? It's their customers' money the bank is lending, after all.

The bank is in the business of making money, not being kind. They're not there to help people in financial difficulties. They are there to extract as much interest from people as they can while providing a financial product.

People who have savings, have money to pay their loan repayments. People in financial difficulties might not be able to repay.

Because wealthy people know they can build their wealth further by taking a loan for their purchases and investing their savings.

Precisely because they know you are likely to pay it back and banks value liquidity to make their own investments. If you have enough money, you start to get offers with such good interest rates that it makes sense to take the loans and keep the money in hand earning elsewhere.

we could buy most things for cash, but we don’t because the interest charged is less than our money is earning. We just never buy more than we could afford to pay off immediately. So we have to have the cash to allow ourselves the purchase, we just don’t actually let it all go at once.

or in simpler terms, having money saves money yet again.

Banks don’t refuse people that have no money in the bank. They refuse people with poor credit and low salaries that cannot afford the loan or are high risk of default

It makes no sense to me though, to be borrowing money, (like £20,000,) with the high repayments that you would have, and also the high interest, when you have got that money in the bank, and maybe 20 or 30 thousand pounds more.

It's batshit to borrow money, (like £20,000 if you have got say, £50,000 in the bank.) Borrowing money via a loan, and paying loads of interest to the bank - whilst you are squirreling away 10s of 1000s of pounds makes zero sense. You get far less interest on your savings than the bank charges interest on a loan.

The bank throwing £20K and £30K loans at people when they've got £50K in their savings is pointless and silly. I don't know ANYone who would borrow when they have more than enough in their savings! (Or anyone who has done it.)

Surely this depends on the loan interest rate vs. any savings interest rate or stocks and shares avg. growth rate.

If the loan interest rate is less, they make more by keeping their money where it is and taking out the loan.

Though I am sure someone more knowledgeable will shed better light on this than I have.

Because a person who will borrow money from them, paying interest on the loan so they will profit, but who also has money of their own to repay it, so they are low risk, are the perfect customer.

As an underwriter, I approve multiple people a day (10/20 plus) for lending who have high levels of savings.

Lots of people with savings like to have them there as a safety net and plan big expenses via finance.

But also as someone else stated above, generally wealthy people will invest there money and generate more income from it than the finance would cost them.

I also regularly decline people that have a high level of savings as having money in the bank today doesn’t mean it’s responsible to lend to someone for the loan term. Also someone who suddenly has a large lump sum ie through inheritance or pension is viewed differently from someone that has the same savings but has built them up themselves - the latter customer demonstrates they have surplus income making lending affordable.

It does depending on the interest rates of savings versus borrowing

Are you serious OP? Banks are in business, they sell you money. Having money in savings shows you can afford to buy it.

It isn't social welfare.

I can absolutely assure you that with pretty standard investments you can well outstrip the interest rate on a loan. Real wealth comes via investments and assets, not via income, so if you can service the loan via your income, then it is a no brainer.

I’ve just checked - currently a £20,000 loan over 5 years would result in £23,587 being repaid. A £20,000 investment in a bog standard 5 year fixed term savings account paying 4.85% a year available on the high street would be worth £25,385. So if you can afford the loan repayment out of your income, then take it and you'll be nearly £2K better off.

Most people with significant savings are going to be investing in the stock market with far greater returns than that (and a bit more risk as a result, so you need to be able to ride out the bumps).

In this country we have it drummed it into us that all debt is bad, and of course a lot of it is as people either chose to, or have no choice but to, use it for things they cannot otherwise afford. However as a financial tool, debt can also be used to build wealth. In the same way that we take mortgages because we know in the long run that we will own a house - an appreciating asset - and not have to pay rent forever. Debt becomes leverage, not liability.

I often see MN posters say that they’ve never had a credit card and never take out loans because they hate the idea of borrowing: and I think this is a relatively common mindset particularly among people who grew up in a different financial market and in a socioeconomic background where debt was considered something to fear and something their parents advised against having. I was brought up with the same, and only gained financial literacy in the sense of learning how to make my money work for me in my thirties. It’s all context dependent and financial literacy is a really important skill to teach: if e.g. you can put your £10,000 into savings at 3.5% and borrow £10,000 on an interest-free credit card which you know you’ll pay off before the interest-free period runs out - that’s serviceable debt, and you are essentially making money from your debt.

I’m currently £200 into my overdraft until payday in two days, and it’s going to cost me 7p in interest. For me, that 7p is inconsequential - and moving £200 from my interest-gaining savings account would lose me 15p in lost interest there, so it’s a no-brainer. There will be many “me”s across the board who are making the same calculation - and add up all those few pence across all those customers, and that’s why banks are very happy to encourage in customers in fortunate financial positions, willing to borrow from them and pay interest because they’re running a meta-deck of their broader financial situation in the background.